Portfolio Theory: Analyzing Returns, Risks, and COVID-19 Effects

This presentation analyzes portfolio theory, focusing on returns, risks, and qualitative factors in share selection. It evaluates Commonwealth Bank (CBA) and Ansell Limited (ANN), considering their respective industries and applying concepts like geometric mean return and risk-adjusted returns. The analysis includes systematic and unsystematic risks, ultimately recommending investment in Ansell Limited due to its higher return and lower systematic risk, especially in the context of the COVID-19 pandemic. The presentation also explores the impact of COVID-19 on the healthcare and financial sectors, discussing fiscal and operational challenges in healthcare, lending caution in banks, and shifts in consumer behavior. The conclusion emphasizes the use of returns and risks in making informed stock purchase decisions.

Portfolio Theory
Name
Institution

 The task outlines and discusses the
following concepts of portfolio theory:
1. Returns
2. Risks
3. Qualitative factors considered when
chosing shares.
4. Impact of COVID-19
Overview

 A portfolio is a collection of various
investment.
 The portfolio theory presents an answer to
how can investors can minimize the risk and
maximize the expected return (Shied,
2018).
 A weighted average is given throughout the
portfolio to find the expected returns on the
individual assets of each stock in the
portfolio.
Portfolio theory

 Common wealth bank(CBA) belongs to
financial industry.
 It provides financial services such as
investment, insurance, funds management
and brokerage services.
 Ansell limited(ANN) belongs to health care
industry whereby it produces protective
industrial and medical gloves.
Organizations

 A geometric mean return is an average rate
of return on an investment.
 The geometric mean return of
Commonwealth bank and Ansell Limited is
as shown below:
Returns
GEOMETRIC MEAN RETURN
Ansell limited Common wealth Bank
-2% -8%

 Risk adjusted returns measures the risk
involved in producing a return.
 The risk adjusted return of Commonwealth
bank and Ansell Limited is as shown below:
Returns
Ansell limited Common wealth
0.09865537 0.06492958
-0.079210758 -0.041672739
-0.074435444 -0.257398405
ADJUSTED RETURNS

 Investment risk refers to the market
exposure of earning less than the expected
return.
 The greater the chance of a return far below
the expected return, the greater the risk
(Jarrow, 2018).
 There are two types of risks: systematic and
unsystematic risk.
Risk

 Systematic risk refers to a risk that is both
unpredictable and can not be diversified.
 The systematic risk of shares of
Commonwealth Bank and Ansell Limited is
as shown below:
Risk
ANN CBA
10% 16%
SYSTEMATIC RISK

 Total risk is a combination of both
systematic risk and unsystematic risk.
 The total risk of shares of Commonwealth
Bank and Ansell Limited is 53%.
Risk

 Based on the risk and return of the Stock of
both Ansell and Commonwealth Bank, I
would invest in Ansell Limited.
 It has a higher return and a low systematic
risk.
 In doing so, I will maximize my returns and
minimize the risk.
 Additionally, the Company is assured of
making profits because the products are on
high demand during COVID-19 pandemic.
Recommendations

 Healthcare facilities have experienced fiscal
deficit due to financial challenge.
 Healthcare facilities have also experienced
operation challenge as a result of shortage
of drugs and medical equipment.
Impact of covid-19 of health
sector

 Banks have increased caution on lending
especially to businesses that rely on
imports.
 Private credit sector growth have been
inhibited to the high risk of credit default.
 Banks have made losses as a result of
reduced revenues from bank deposits.
 Online banking and telephone services have
been strained.
Impact of Covid-19 on financial
sector